The New Arthurian Economics

Friday, December 23, 2016

You know how, when you look at a graph of debt relative to GDP, the line starts out flat and then suddenly starts going up in the 1980s? Like this graph:

Graph #1: TCMDO Debt relative to GDP

Some people look at a graph like that and say there was an "explosion" of debt in the 1980s.

Well, I don't see the same things other people see. Here's what I see:

Graph #2: TCMDO Debt relative to GDP

Pretty close, those two trend lines.

Some will say that I made those trend lines close by selecting just the right data.

Well, yeah, I did. That was the point. Any asshole can pick data points that don't show an underlying consistency. It takes a special kind of asshole to pick the points to show things that no one else can see.

We have the Korean war. Then after it, in heavy blue, let's call it the "natural" path of debt. And after that, the Great Inflation, which eroded debt and pushed the gray line low.

Then there was the end of the Great Inflation, and a slight overshoot as the gray line came back up. And then, in heavy red, a return to the "natural" path of debt. After that of course, the housing bubble and the crisis.

It's kinda sad that the "natural" path appears so seldom, because of all the interference.

For the record, though, this thing that I'm calling the "natural" path, there are caveats attached to the word "natural". The "natural" path of debt, indicated here by the exponential trend lines, is not the result of our natural inclinations.